Management as if Energy Mattered

Paul Birkeland is the founder and principal of Integrated Renewable Energy in Seattle. He develops Strategic Energy Management Systems for government, commercial, and industrial organizations through Integrated Renewable Energy. Here he discusses the evolving sector of Energy Management within business.

If your firm has navigated the recession this far, it’s a pretty good bet that you’re managing your finances like a Border Collie does his sheep. And I’m willing to guess that your firm is also managing its workforce, its product inventory, and its materials inventory pretty closely. All these things matter to a firm’s viability.

But I’m also willing to bet that one key facet of your firm’s operation is still escaping close scrutiny and active management – your energy use. This is a good bet because strategic energy management is just now maturing. Managers are just now recognizing energy use as something to be actively addressed, an opportunity to become a proactive user of energy rather than a passive victim of energy bills. And the future is only going to amplify energy’s importance to your bottom line.

No less an authority on risk than Lloyd’s of London recently released a report encouraging firms to actively address their energy use or face devastating price spirals and uncertainty when the global economy more fully recovers. Their report said bluntly, “Businesses which prepare for and take advantage of the new energy reality will prosper – failure to do so could be catastrophic.”

So what is Strategic Energy Management and how does one go about it?

Strategic Energy Management is an approach to proactively managing an organization’s energy use, and, more importantly, to bringing about change within the organization so that energy awareness is a self-sustaining part of the culture. It is a way of making management’s commitment to energy efficiency manifest in the organization’s operations. If done properly, it can also energize your workforce, and lead to organizational gains in reduced turnover, lower absenteeism, and higher productivity.

Many efficiency proponents believe that if you show the projected dollar savings or payback for energy improvements, top managers will accept these proposals. That’s not always true. Organizational size and complexity pose formidable hurdles to capturing efficiency opportunities. Manufacturing enterprises have organizational structures, accountabilities, and incentives that are designed to make products and get them out the door, not reduce energy use. While most companies will express a desire to “reduce costs,” energy inefficiency is not fully recognized in day-to-day practice. Control of energy waste requires cross-functional authority and communications that don’t exist in most facilities. Given this reality, energy waste often continues, no matter how financially attractive a project looks on paper. That’s where a formal Strategic Energy Management System comes in.

Energy management fits into each firm’s management practices differently, but there are some basic components that you will have to put in place.

• Management Commitment – It all starts with a clear, written commitment – to the program and to specific goals – from management, preferably as a formal policy statement. Management commitment aligns departments and liberates resources. It is the sin qua non of Strategic Energy Management components. Management should also publicly name an Energy Leader. This need not be a full time job, but the entire organization should know who the Leader is and what his or her charge is.

• Energy Baseline – You will need to access and analyze your firm’s energy bills for at least three years, more if you can get them. You will need to choose a baseline year for some logical reason such as a new facility, new equipment, new processes, or whatever. But your baseline needs to be relevant to today’s operation.

• Energy Performance Indicator – This is the most technical aspect of energy management, but a very important one. Using your baseline year, you must derive an Energy Performance Indicator, called an EnPI. The EnPI is an “energy intensity” value. That means that it is the total energy used divided by some measure of your firm’s output, usually cases or tonnes of product. The reason for this is that production variations will totally mask your actual progress on energy efficiency if you don’t take them into account. Tracking energy use by itself is misleading. You need to track your EnPI. You will also need to take into account the weather during your baseline year since, for example, a cold winter will drive up your heating requirement, and may even impact your production energy in some way. Weather, too, masks your actual progress.

• Itemize, itemize, itemize – Develop an ordered list of Energy Usages based on engineering estimates of the amount of energy used by various pieces of equipment. You may want to submeter the larger pieces of equipment, but estimates can be made based on electrical rating and use profile. You can also develop a list of Energy Opportunities based upon an engineering assessment of how easily a given energy use can be improved or a Return on Investment (ROI) estimate. This gives you your project line up for the next year or so, and should be updated periodically.

• Engage Your Workforce – Equipment uses energy, but so do processes. And the best way to tap into insight into your processes is to engage your workforce. Let me give you an example. At one firm I know, they decided to save energy by turning the thermostat down in the plant. No surprise, they received some complaints from workers feeling cold. But the facility engineer noticed that all the complaints came from about the same location on the assembly line. Upon talking with those individuals, they found that it was not so much the lower temperature, as it was a draft in that area that made it feel colder. By adjusting one of the fans and some duct blades, they eliminated the draft and the complaints. They are now saving over $100,000.00 a year in heating costs. But without engaging their workers, they might never have been able to do it comfortably.

• Make a Plan, Carry It Out – Not every proposed project will get funded, of course. But management is being held to certain goals, and having an overall plan for energy upgrades based on ROIs and your prioritized list will make implementation more likely.

• Track Your Progress – Make sure there is a clear responsibility to record energy use data as it comes in, and track and report energy intensity reduction. This is the best way to keep management and workforce engaged.

• Repeat – Set periodic intervals for checking your progress and workforce training and engagement. Set longer intervals for updating your Energy Usages list. And even longer intervals for updating your EnPI, Baseline, and Goals. These cycles are the key to ongoing energy use reduction.

Setting up a Strategic Energy Management System is not a trivial undertaking. But they have proven effective in such leading firms such as 3M, Ford, DuPont, Frito-Lay. According to the Alliance to Save Energy, 3M’s Energy Management System resulted in reducing energy consumed per pound of product by 20 percent between 2000 and 2005. The Kimberly-Clark Corporation, a multinational paper products firm, uses a series of five-year energy management plans. Their first plan (1995-2000) led to a corporate-wide 11.7 percent reduction in energy use per ton of product. Smaller firms can benefit as well. C&A Floorcoverings, a small flooring manufacturer in the State of Georgia achieved 10 percent savings on an annual natural gas expenditure of $824,500 by implementing a Strategic Energy Management System.

There is resistance to energy management for a variety of reasons. Most industry decision-makers believe the solution to reducing energy costs is to seek the lowest available energy prices. Too often, managers fail to grasp the opportunities offered by energy management, which focuses on both consumption and prices.

Energy management also has no traditional place in the typical manufacturer’s chart of organization, job descriptions, and performance accountabilities. But recognition of energy management is growing.

A year and a half ago, the International Standards Organization (ISO) fast-tracked a new standard on Energy Management Systems, ISO 50001, aiming to get it drafted and published in two years rather than the typical three. It is considered that important by the participating nations – UK, US, China, Brazil, and a host of others. It’s due out in the second quarter of 2011. This will be a watershed in energy awareness.

Not everyone should ‘go ISO’ of course. Historically ISO certification is used to show management’s commitment to stakeholders – a Board of Directors, shareholders, or even customers. But the process mapped out in the ISO, which I outlined above, is thoroughly adaptable to many smaller firms with or without certification.

As economies pick up, the tightness of energy supplies will again become apparent. Managing energy reduces costs, mitigates risk, and lowers carbon emissions. It can even energize your employees in the process. It’s time to start managing as if energy mattered.

Paul Birkeland is serving as a consultant to a US Department of Environment sponsored pilot project to get four companies in the Pacific Northwest certified to ISO 50001 by the end of 2011.